• Despite a stable Unifi ARPU, we believe TM will showcase resilient earnings momentum over the next few quarters, mainly due to lower tax provision. Moving forward, Unifi's earnings will be sustained by increasing demand for data, which will offset the impact of lower wholesale prices.

• Drivers of TM's earnings include: (i) the introduction of enhanced 5Grelated products, (ii) benefits from the ongoing infrastructure development of 4G and 5G networks by DNB, leveraging on TM's extensive nationwide network infrastructure, and thus a positive contribution to TM Wholesale, and (iii) the expansion of internet sector.

• Maintain a BUY call on TM with a TP of RM7.00. Our valuation is derived based on DCF valuation with a WACC of 7.4% and a long-term growth of 1.0%.

Positive earnings momentum

TM's 1Q23 top-line remained relatively stable, experiencing a slight decline of -0.1% YoY. However, TM's net profit for 9M23 surged by +46.2% YoY to RM1,437mn, primarily attributed to lower-than-expected tax and depreciation in the current quarter. In 3Q23, the group's revenue declined by -2.6% YoY however. Nevertheless, net profit saw a significant rise of >100% YoY, driven by lower net finance costs and the recognition of tax credits from the utilization of previously unrecognised tax losses.

Sanguine outlook on Unifi business

We foresee TM to continue to leverage on DNB's 4G and 5G network infrastructure development, capitalizing on TM's extensive nationwide network. Despite a stable Unifi ARPU in the current quarter, TM will showcase sustain earnings resilience over the next few quarters on the back of low tax provision. The group has guided a reduction in taxes in the short term, utilizing previously unrecognised tax losses over the next two years. Despite the decline in prices following the announcement of lower regulated prices on wholesale broadband, mandated by the Mandatory Standards on Access Pricing (MSAP), we foresee limited impact on broadband ARPU. We opine Unifi's earnings will be sustained by increasing demand for data, which will eventually offset the impact of lower wholesale prices.

Maintain a BUY call with TP of RM7.00

Maintain a BUY call on TM with a TP of RM7.00. Our valuation is derived based on DCF valuation with a WACC of 7.4% and a long-term growth of 1.0%.

Risks to our call

The risks to our call include: (i) increased competition from other service providers in terms of pricing and network stability, posing a risk of downward earnings impact for the Unifi segments, (ii) unfavorable regulatory changes, and (iii) weaker-than-expected earnings.

Source: BIMB Securities Research - 22 Jan 2024